Negative gearing: Labor policy delay could cost budget $1.6b

The Labor Party would slug the federal budget with an extra $1.6 billion a year if it delayed its planned negative gearing changes because that would extend the tax break that has risen in cost since banks started charging investors more, economist Richard Holden said.

UNSW Business School economics professor Dr Holden, said on Monday the federal government was now spending $1.6 billion a year more in negative gearing tax concessions than it was in 2015, and to delay the reforms would set back the process of budget repair.

"The cost of negative gearing has gone up quite a lot, particularly over the last year or so by about $1.6 billion per year and that's because of the increase in interest rates on investor loans," Dr Holden said n Monday.

Hammering the budget with another $1.6 billion: The cost of negative gearing breaks has risen since 2015 as banks have increased lending rates to investors. Anna Kucera

Last week Opposition Leader Bill Shorten left open the option of delaying the curtailing of negative gearing and capital gains tax breaks until as late as mid-2020 depending on the election date.

"As the effect is already expected to be small, then a further delay in implementation could make the likely effect even smaller," Mr Bloxham said.

"Importantly, though, investors are clearly also forward-looking, so a key factor would be having clarity about any future policy changes so that market participants can make well-informed decisions."

The Centre for Independent Studies head of economics Simon Cowan said timing had little to do with it.

"The question around the policy changes is whether they should be made rather than when. Politically, of course, the 'blame' for a prolonged slump may accrue to Labor regardless of the economic reality."

Market Economics managing director and former Labor prime ministerial advisor Stephen Koukoulas said most people would have factored the impact of negative gearing changes into their views by now, but that might be political "poison".

"I would have thought that any negative gearing changes that have been announced would have been factored in to people's views regardless of whether the changes are introduced in 2019 or 2020," he said.

"I don't know if it will be election poison or an election plus.

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"There will be a strong campaign against it. With house prices already falling you can just see the Coalition saying 'well if you see prices falling now imagine what it will be like when the negative gearing changes are introduced'."

Opponents of the measure say it will never work.

"Delaying a bad policy 18 months, does it make it incrementally better? No," said Tim Reardon, the Housing Industry Association's principal economist.

Mr Reardon said even a delayed implementation would keep investors out of the market, harming demand for new homes.

"From a building perspective, the market is likely to be cooling for at least the next two years, probably three, as we come down off record levels of activity, so the timing is still going to be adversely impacting a cooling market," he said.

Property Council group executive for policy and advocacy, Mike Zorbas said Labor's proposed changes came at a time of tightening credit, falling values in our biggest markets, speculation about future migration levels and various state tax hikes on international investment.

"We shouldn't be compounding these risks at a fragile time in the cycle," he said.